[Correction: 4:40 pm Pacific 4/21/10] The folks at San Diego-based Phenomix are wrestling with some serious cognitive dissonance today, which is a fancy way of saying they got some serious bad news mixed in with some good news.

First, the bad news. Phenomix’s U.S. partner, New York-based Forest Laboratories (NYSE: FRX), said today in its quarterly financial report that it has terminated its alliance with Phenomix to develop dutogliptin, an experimental drug for diabetes. That decision came after Phenomix unveiled results from its first pivotal-stage clinical trial of the treatment. And that’s the confusing part. Phenomix said today the study of 544 diabetic patients showed its drug reached its primary goal, and all of the secondary readouts, which suggests it is comparable to other medicines in its class in terms of safety and effectiveness, CEO Laura Shawver says.

Forest didn’t bother to explain its decision in a conference call with analysts today, other than to say it dumped the Phenomix deal “for business reasons.” Part of Forest’s calculation has to factor in the competition. Phenomix’s drug is designed to block an enzyme called DPP4. Merck led the way in October 2006 with sitagliptin (Januvia), the first drug of this class approved in the U.S. By blocking DPP4, these drugs raise the levels of a peptide called GLP-1, which signals that food is in the body and tells the pancreas to make more insulin to control blood sugar. The market for these DPP4 blockers ought to be worth more than $10 billion a year, Shawver has said. The Merck drug alone generated $1.9 billion in worldwide sales last year. Novartis and Bristol-Myers Squibb also have marketed drugs in the same class. [Correction 4:40 pm, 4/21/10: An earlier version said Novartis and Bristol have FDA-approved drugs. While the Bristol treatment is FDA-approved, the Novartis drug is only cleared for sale in Europe.]

Laura Shawver

“We agree with the business decision on dutogliptin, as it always looked like a “me-too” opportunity to us,” said Thomas Russo, an analyst with Robert W. Baird, in a note to clients today. That said, Forest’s termination might send an unfriendly message to other biotech partners. It may “leave marks on the (Forest) business development track record,” Russo wrote.

No matter how you slice this story, it’s bad news for Phenomix. The company signed the partnership with Forest back in October 2008. The deal brought in $75 million in upfront cash to Phenomix and promised to generate as much as $340 million more in milestones over time, with Forest agreeing to equally share expenses and profits from the development of dutogliptin in the U.S. About a year later, Phenomix found another partner, Italy-based Chiesi Farmaceutici, in a deal that covers Europe and other territories around the world.

As disappointing as this is for Phenomix, and biotech, it is not that difficult to understand Forest’s business decision. In 2 monotherapy studies in diabetics with an average Hba1c of 8.0%, Januvia (sitagliptin) demonstrated an A1c drop vs placebo of 0.6 to 0.8%. The 0.59% drop with 400 mg of dutogliptin (from a baseline of 8.19%) is reaonably comparable, but it’s not clear that the drug has any advantages to the two DPP-4 inhibitors currently marketed in the US, either in terms of dosing convenience, efficacy or safety/tolerability.

Well, damn, damn, damn. How many hundred million do you need? I would prefer to have a few to help friends out.However, I was born with a tarnished silver spoon in my mouth, and have just made enough money to make it shiny.

Um, me too!? hardly, the “drug” was a boronic acid, who’s stupid enough to take a chance on it, Forest obviously came to their senses. What would one expect via the ActivX wonder team? So much for the IPO play